Dm v Et 1150 d.nev. 3-06-Cv-00056 1150 Order Affirming Sanctions

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UNITED STATES DISTRICT COURT

DISTRICT OF NEVADA

* * *

DENNIS MONTGOMERY and theMONTGOMERY FAMILY TRUST,

Plaintiffs,

v.

ETREPPID TECHNOLOGIES, LLC;WARREN TREPP; and the UNITEDSTATES DEPARTMENT OF DEFENSE,

Defendants.

AND ALL RELATED MATTERS.

)))))))))))))))))

3:06-CV-00056-PMP-VPCBASE FILE

3:06-CV-00145-PMP-VPC

O R D E R

Presently before the Court is the Objections of Liner Grode Stein Yankelevitz

Sunshine Regenstreif & Taylor LLP to Order Re: Motion for Sanctions (Doc. #1035) with

supporting declaration (Doc. #1036), filed on May 11, 2009. Interested Party Michael

Flynn filed a Response (Doc. #1102) on June 25, 2009.

Also before the Court is the Objections of Dennis Montgomery to Order Re:

Motion for Sanctions (Doc. #1037) with supporting declaration (Doc. #1038), filed on May

11, 2009. Interested Party Michael Flynn filed a Response (Doc. #1099) on June 25, 2009.

Also before the Court is Teri Phams Objection to Magistrate Judges Order

(Doc. #1040), filed on May 11, 2009. A supporting letter (Doc. #1050) was filed on May

15, 2009, and an errata (Doc. #1051) was filed on May 19, 2009. Non-Party Deborah Klar

filed a Joinder (Doc. #1057) on May 27, 2009. Interested Party Michael Flynn filed a

Case 3:06-cv-00056-PMP-VPC Document 1150 Filed 04/05/10 Page 1 of 38

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Response (Doc. #1098) on June 25, 2009. Teri Pham filed a Notice of Relevant New Case

Law (Doc. #1127) on October 9, 2009.

Also before the Court is the Objections of Non-Party Deborah A. Klar to

Findings of Magistrate Judge in Stayed Order Re: Motion for Sanctions (Doc. #1042) with

supporting declaration (Doc. #1043), filed on May 11, 2009. Interested Party Michael

Flynn filed a Response (Doc. #1100) on June 25, 2009. Deborah Klar filed a Notice of

Relevant Case Law (Doc. #1128) on October 19, 2009.

I. BACKGROUND

This case arises out of a dispute between Dennis Montgomery (Montgomery)

and Warren Trepp (Trepp) over the ownership of certain computer software codes.

During the course of the underlying actions, Montgomery terminated the representation of

his counsel, refused to pay his former counsels attorneys fees, and sought the return of his

client file. Montgomery obtained new counsel who represented him both in the underlying

action and in various efforts to obtain his client file from his former counsel.

Montgomerys former counsel ultimately filed a motion for sanctions in this Court against

Montgomery and his new counsel for, among other things, their conduct in seeking to

obtain the client file in various other forums. The Magistrate Judge in this action, the

Honorable Valerie P. Cooke, held an evidentiary hearing and subsequently awarded

sanctions against Montgomery, his new counsel, and new counsels law firm. The

sanctioned parties object to the sanctions award.

The underlying lawsuits commenced when Trepp filed suit in Nevada state court

on January 19, 2006. (Status Report (Doc. #16 in 3:06-CV-00145-PMP-VPC).) On

January 31, 2006, Montgomery filed suit against Trepp in this Court. (Compl. (Doc. #1).) 1

Citations are to the base file docket in this case, 3:06-CV-00056-PMP-VPC, unless otherwise1indicated.

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In the state court action, Montgomery asserted a third party claim against the United States

Department of Defense. (Notice of Removal (Doc. #1 in 3:06-CV-00145-PMP-VPC), Ex.

1.) The Department of Defense removed the state court action to this Court. (Notice of

Removal (Doc. #1 in 3:06-CV-00145-PMP-VPC).) The Court subsequently consolidated

these two actions. (Mins. of Proceedings (Doc. #123).)

Prior to removal to this Court, the state court held a preliminary injunction

hearing. (Snyder Decl. (Doc. #33 in 3:06-CV-00145-PMP-VPC), Trans. of Proceedings.)

At that hearing, Montgomery was represented by local counsel Ronald Logar (Logar) and

Eric Pulver (Pulver), as well as Michael Flynn (Flynn), who was appearing pro hac

vice. (Id.; Verified Pet. for Permission to Practice Pro Hac Vice (Doc. #9 in 3:06-CV-

00145-PMP-VPC).) Flynns pro hac vice petition identified a Massachusetts bar number

for Flynn, and listed his address in California. (Verified Pet. for Permission to Practice Pro

Hac Vice (Doc. #9 in 3:06-CV-00145-PMP-VPC).) At the hearing, which Montgomery

attended in person, Logar introduced Flynn to the state court as a member of the

Massachusetts Bar, indicated that Flynn had applied for pro hac vice status, and stated that

the Massachusetts bar had sent a certificate of good standing to the Nevada State Bar. (Id.

at 5-6.) Logar requested the court permit Flynn to appear at the hearing, and the state court

permitted it. (Id.)

Around this same time period, the Federal Bureau of Investigation sought and

obtained search warrants to search Montgomerys house and several storage units.

(Application & Aff. for Search Warrant (Doc. #1, #4, #6, #8, #10, #12 in 3:06-CV-00263-

PMP-VPC).) Montgomery subsequently filed a motion to unseal the search warrant

affidavits and for the return of his property. (Mot. to (1) Unseal Search Warrant Affs.; (2)

For the Return of Property; and (3) For the Segregation and Sealing of All Attorney-Client

& Trade Secret Materials Seized (Doc. #21 in 3:06-CV-00263-PMP-VPC).)

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In the search warrant proceedings, the United States moved in February 2007 to

strike pleadings filed by Flynn and to preclude Flynns pro hac vice admission in the case.

(Govts Mot. to Strike (Doc. #110 in 3:06-CV-00263-PMP-VPC).) The Government

contended that Flynn was admitted proc hac vice only in the related civil suits, not in the

search warrant proceedings. (Id. at 2.) The Government further contended that Flynn

should not be admitted because his pro hac vice petitions in the consolidated civil actions

contained what the Government asserted were misleading statements. (Id.) Specifically,

the Government argued that although the application stated Flynn was licensed only in

Massachusetts, Flynn actually maintained a residence and phone number in California, and

practiced in California. (Id. at 2-4.) The Government included as an exhibit a February 7,

2007 letter which Flynn wrote on Montgomerys behalf to certain high ranking government

officials. (Id., Ex. 1.) On the letterheard beneath Flynns name it states admitted only in

Massachusetts. (Id.)

Flynn, Logar, and Pulver opposed the motion on Montgomerys behalf.

(Montgomerys Oppn to the Govts Mot. to Strike (Doc. #113 in 3:06-CV-00263-PMP-

VPC).) In support of the opposition, Flynn filed a declaration in which he averred that he is

a member of the Massachusetts bar, he maintains residences in both Massachusetts and

California, and he maintains an office address in Boston, Massachusetts. (Flynn Decl.

(Doc. #114 in 3:06-CV-00263-PMP-VPC) at 1-3.) Flynn also included two letters he sent

in February 2007 on Montgomerys behalf to various government officials which stated

beneath his name that he was admitted only in Massachusetts. (Id., Exs. 1-2.)

Montgomery also filed a declaration in support of the opposition, which hereafter

will be referred to as the February 2007 Declaration. (Montgomery Decl. (Doc. #115 in

3:06-CV-00263-PMP-VPC).) Montgomery averred, among other things, that he had read

the motion to disqualify Flynn, that he had read letters Flynn had sent on Montgomerys

behalf to government officials, that the Governments attempt to remove Flynn would

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gravely damage his constitutional protections, and that Flynn was Montgomerys counsel

of choice due to Flynns experience, integrity, and litigation expertise. (Id. at 4, 13-

14.) Montgomery attached as an exhibit to his declaration a March 1, 2006 letter Flynn2

sent to various government officials on Montgomerys behalf. (Id., Ex. 1.) The letterhead

states beneath Flynns name, only admitted in Massachusetts. (Id.)

This Court denied the motion to strike Flynns filings in the search warrant

proceedings. (Order (Doc. #122 in 3:06-CV-00263-PMP-VPC).) The Court also ordered

the entire search warrant proceedings, which up to this point had been sealed, to be

unsealed subject to objections by the United States regarding the states secret privilege and

objections by the parties to the civil action regarding trade secrets or other privileges. (Id.)

The Court set forth a procedure by which the United States would complete review and

redaction of the privileged material in the search warrant proceedings, after which the

parties to the civil cases would have access to the redacted materials. (Order (Doc. #147 in

3:06-CV00056-PMP-VPC).) The parties then would have a certain period of time within

which to review the materials and assert any objections to the unsealing of any unredacted

materials. (Id.)

Montgomery filed an objection to the Governments decision not to redact certain

information which Montgomery contended was protected by the states secret privilege.

(Montgomerys Oppn to the Govts Designations of State Secrets & Classified

Information in the Search Warrant Case File (Doc. #168).) At a hearing on the parties

various objections, Flynn proposed submitting a declaration signed by Montgomery under

oath which stated, among other things, that an attached exhibit was a true and correct copy

of an email. (Mins. of Proceedings (Doc. #188).) The Court permitted the Trepp parties

The February 2007 Declaration contains two paragraphs numbered 13 and 14. The Court2refers to paragraphs 13 and 14 contained on page 8 of the Declaration.

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and the Government to review the declaration and file any objections thereto. (Mins. of

Proceedings (Doc. #188).) The Government determined that Montgomerys declaration

contained material subject to the states secrets privilege and the related protective order

entered in the case, and provided redactions thereto. (United States Notice of Filing (Doc.

#197).) The Trepp parties also filed an objection, claiming that the email which

Montgomery averred was a true and accurate copy of the original was fabricated. (Defs.

eTreppid Tech., LLC & Warren Trepps Notice of Obj. to the Public Filing of a Fabricated

Document by Dennis Montgomery (Doc. #198).)

On July 9, 2007, Flynn and out-of-state co-counsel Carla DiMare (DiMare)3

moved to withdraw as Montgomerys attorneys. (Ex Parte Mot. to Withdraw as Counsel for

Montgomery (Doc. #204).) Flynn and DiMare gave as grounds for their withdrawal that

Montgomery breached an obligation for payment of fees and engaged in conduct that made

continued representation unreasonably difficult. (Id.)

In response to Flynns motion to withdraw, the United States requested Flynns

withdrawal be subject to various conditions related to the protection of states secrets

privileged materials that may be contained in Flynns client files. (United States Response

to Ex Parte Mot. to Withdraw as Counsel for Montgomery (Doc. #209).) Montgomery,

through Logar and Pulver, indicated he did not oppose Flynns motion to withdraw, and he

already had retained the law firm of Liner Yankelevitz Sunshine & Regenstrief LLP (Liner

Firm) to substitute into the case. (Pls. Reply to Michael J. Flynns & Carla A. DiMares

Mot. to Withdraw & the United States Response Thereto (Doc. #213).) Montgomery

opposed the Governments efforts to place as conditions upon Flynns withdrawal a

governmental review of the client file because such a review would intrude on attorney-

client privileged materials. (Id.) Montgomery also made reference to Nevada and

DiMare was admitted pro hac vice in this Court on February 6, 2007. (Order (Doc. #113).)3

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California professional rules of conduct which he contended would require Flynn to turn

over the client file to Montgomery. (Id.) Montgomery supported this filing with a

declaration from Deborah Klar (Klar), a partner of the Liner Firm. (Id., Klar Decl.) Klar

averred that the Liner Firm was ready, willing, and able to substitute into the case upon

receipt of the client file from Flynn. (Id.) Klar requested the Court reject the Governments

requested conditions on Flynns withdrawal and require Mr. Flynn and Ms. DiMare to turn

over all client files in their possession. (Id.)

On July 31, the Court set an August 17 date for hearing Flynns motion to

withdraw. (Min. Order (Doc. #223).) On August 1, Montgomery filed a notice with the

Court indicating that Flynn and DiMare had been terminated as counsel of record. (Notice

of Termination of Counsel (Doc. #227).)

On August 3, Klar and another partner of the Liner Firm, Teri Pham (Pham),

filed a Complaint in Los Angeles Superior Court on Montgomerys behalf against Flynn

(the LA Action). (Request for Judicial Notice (Doc. #262), Ex. 1.) The Complaint

alleged that Flynn led Montgomery to believe that Flynn was licensed to practice law in

California, and that [t]hroughout the course of his representation, Flynn held himself out to

[Montgomery] as a California lawyer. (Id.) The Complaint further alleged that Flynn

refused to return the client file and that Flynn has threatened to disclose, and has disclosed

confidential and privileged attorney-client communications to others. (Id.) The Complaint

sought as relief a preliminary injunction requiring Flynn to return the client file and

enjoining Flynn from disclosing privileged communications to any third party. (Id.)

On August 6, Flynn removed the LA Action to the United States District Court

for the Central District of California and sought transfer to this Court. (Request for Judicial

Notice (Doc. #275), Ex. 2.) Two days later, Flynn lodged a number of exhibits regarding

his representation of Montgomery which he contended demonstrated he consistently

represented himself as an attorney licensed only in Massachusetts. (Tr. (Doc. #873) at

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217).)

On August 14, the Liner Firm entered an appearance in the action on

Montgomerys behalf, subject to the approval of a pro hac vice application. (Notice of

Assoc. of Counsel (Doc. #236).) That same date, Liner Firm partners Klar and Pham filed

petitions for pro hac vice admission, and the Court granted the petitions. (Verified Pets.

(Doc. #233, #234); Orders (Doc. #237, #239).)

Also on that same date, Flynn filed a declaration in this Court referencing the LA

Action and attaching as an exhibit Flynns motion to dismiss that action against him.

(Flynn Decl. (Doc. #240).) In the motion to dismiss in the LA Action, Flynn identified

various statements in the LA Action Complaint which he contended were false, specifically

with respect to Montgomerys knowledge about Flynns status as admitted to practice only

in Massachusetts. (Id., Ex. 1.)

On August 17, Flynn and DiMare filed in this action notices of liens and/or

retaining liens for unpaid fees and costs. (Notices (Doc. #243, #245.) Flynn asserted over

$600,000 in unpaid fees. (Id.)

That same date, the Court held a hearing on Flynns motion to withdraw as

Montgomerys counsel in this action. (Mins. of Proceedings (Doc. #247).) At the hearing,

the undersigned indicated the Court was aware of the LA Action, but indicated the Court

did not have the details of that and dont know to the extent to which I have to. (Tr. of

Hrg. (Doc. #267) at 4-5.) Klar advised the Court that Montgomery had a pending suit in

California regarding turnover of the client file. (Id. at 12.) Klar stated that Montgomery

understood Flynn was California counsel, and that under both California and Massachusetts

law, there is no authority for a retaining lien. (Id.) As to the scope of documents which

Klar was seeking, Klar indicated Montgomery gave Flynn original documents which had

not been returned. (Id. at 19.) However, Klar had access to local counsels file, which

consisted of pleadings and exhibits filed with the Court. (Id. at 19-20.) Additionally, Flynn

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indicated that much of the representation was performed via emails between Flynn and

Montgomery, many of which were copied to Logar and Pulver. (Id. at 20-21.) Flynn

estimated that he had maybe one or two original documents of Montgomerys. (Id. at 22.)

When the Court questioned Klar about the emails, Klar responded that she did have access

to Montgomerys emails. (Id. at 23-24.)

At the hearing, the Court questioned Flynn regarding the fee and file dispute and

whether the Court should--

more appropriately simply leave that issue to the court in Californiathats addressing the lawsuit between counsel, including, I wouldimagine, fees and with some secure knowledge that while it may notconstitute a bond, its a forum, in which your fee interests andMontgomerys position on the matter can be vindicated. Why do weneed to tie this litigation up with regard to a fee dispute, if that feedispute is encompassed in the relationship of attorney/client asencompassed in the California litigation?

(Id. at 25.) Flynn responded by noting, among other things, that the LA Action did not

involve a fee dispute. (Id. at 27.) Rather, the action only sought injunctive relief for return

of the file and to enjoin Flynn from disclosing privileged materials. (Id. at 27-28.) The

Court took the matter under submission. (Mins. of Proceedings (Doc. #247).)

On August 21, Flynn filed a motion for attorneys fees and costs in this Court,

seeking the outstanding fees and costs owed to Flynn and DiMare for their work in the

underlying action. (Mot. for Attorney Fees & Costs (Doc. #248).) On August 31,

Montgomery filed an objection to Flynns notice of lien, asserting the parties attorney-

client relationship was governed by California law which does not permit retaining liens,

the amount of fees requested was unreasonable, an action already was pending in the Los

Angeles Superior Court regarding the attorney-client relationship between the parties, Flynn

was licensed to practice only in Massachusetts which does not allow retaining liens, and

even under Nevada law Flynn was not entitled to a retaining lien because he voluntarily

withdrew. (Notice of Obj. to Notice of Lien (Doc. #254).)

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On August 22, the United States District Court for the Central District of

California denied Montgomerys motion to transfer the case to this Court, and ordered the

action remanded to the Los Angeles Superior Court. (Request for Judicial Notice (Doc.

#262), Ex. 3.) The court remanded for lack of diversity jurisdiction, finding Flynn failed to

establish more than $75,000 was at stake with respect to the requested injunctive relief.

(Id.)

On September 4, the undersigned issued an order granting Flynns motion to

withdraw. (Order (Doc. #256).) In the Order, the Court noted that the Government sought

to condition Flynns withdrawal on four conditions in relation to protection of state secrets

privileged material potentially residing in Flynns files. (Id.) The Court also noted the

dispute between Flynn and Montgomerys new counsel over the turnover of the client file.

(Id.) The Court granted the motion to withdraw subject to two of the Governments

requested conditions, but denied the Governments other two requested conditions. (Id.)

As for the client file dispute, the Court stated:

to the extent the Montgomery Plaintiffs seek to condition thewithdrawal of Flynn and DiMare on Flynn and DiMare surrenderingtheir complete client file to new counsel of record for Plaintiffs(Doc. #213), said precondition is rejected by the Court. In this regard,the record before the Court does not support a finding that Flynn andDiMare have withdrawn voluntary [sic] as counsel for MontgomeryPlaintiffs, In the Matter of Kaufman, 93 Nev. 452, 567 P.3d 957(1977), nor does it appear on the record before the Court that Flynnand DiMare should be compelled to surrender their files to newcounsel of record. Figliuzzi v. Fed. Dist. Court, 111 Nev. 338, 890P.2d 798 (1995).

(Id.)

On September 7, Montgomery filed an application for arbitration of the fee

dispute with the San Diego County Bar Association. (Request for Judicial Notice (Doc.

#262), Ex. 2.) The application is signed by Montgomery and indicates he will be

represented by Klar and Pham of the Liner Firm. (Id.) In the statement of facts section,

Montgomery asserted that Flynn held himself out as a California attorney throughout the

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representation. (Id.)

On September 10, Klar and Pham filed on Montgomerys behalf an opposition to

Flynns motion for attorneys fees in this action. (The Montgomery Parties Oppn to

Michael J. Flynns Mot. for Attorneys Fees & Costs (Doc. #261).) In support, Klar and

Pham attached a declaration by Montgomery, hereinafter referred to as the September 2007

Declaration. (Id., Montgomery Decl.) In the September 2007 Declaration, Montgomery

made the following statements:

Mr. Flynn led me to believe at that time and throughout the course of his

representation that he was a California attorney, and I believed that I was engaging a

California lawyer to represent me. Specifically, he told me he had a law firm, Flynn &

Stillman, in California, and I met with him at his offices in Cardiff, California. (Id. at 3.)

[a]ll of the papers he filed with the Court listed a California address. (Id. at

6.)

At no time did Mr. Flynn ever inform me that he was not and is not licensed to

practice in the State of California, or that he is licensed to practice only in Massachusetts. I

only learned of this after I retained new counsel. (Id. at 7.)

On September 12, Klar and Pham, on Montgomerys behalf, filed an ex parte

application for writ of possession in the LA Action. (Request for Judicial Notice (Doc.

#597, Ex. 2.) Montgomery requested that court to enter an immediate routine turnover

order and Writ of Possession. (Id. at 2.) On September 13, the Los Angeles Superior

Court heard Montgomerys ex parte application for writ of possession in chambers. (Exs. to

Flynn Decl. (Doc. #548), Ex. 3.) Montgomery withdrew the ex parte application and

subsequently noticed the motion for hearing, which was set for October 18. (Id., Request

for Judicial Notice (Doc. #597), Ex. 4, Ex. 7 at 3.)

On September 18, Klar and Pham filed on Montgomerys behalf an emergency

request for clarification of this Courts September 4 Order. (Emergency Ex Parte

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Application for Clarification of Order (Doc. #274).) Montgomery referenced the LA

Action and stated that Flynn was asserting the position in the LA Action that this Court

already had adjudicated the issue of the disposition of Montgomerys client file. (Id.)

Montgomery argued the Court had made no such ruling and the parties had not briefed the

issue, including which state law would apply to the dispute. (Id.) Montgomery requested

the opportunity to brief the issue in the event the Court intended to adjudicate the issue.

(Id.)

On that same date, in the LA Action, Pham submitted a memorandum of points

and authorities in support of Montgomerys Application for Writ of Possession. (Request

for Judicial Notice (Doc. #275), Ex. 4.) Pham filed a declaration similar to the September

2007 Declaration in support. (Id., Montgomery Decl.)

On September 25, Montgomery filed a request for an investigation of Flynn with

the Massachusetts State Bar. (Request for Judicial Notice (Doc. #597), Ex. 13.) In the

request for investigation, Montgomery stated that [a]t all times during the representation,

Flynn led the Montgomery Parties to believe that he was authorized to practice law in

California. (Id.)

On October 4, the undersigned denied Montgomerys motion for clarification of

the September 4 Order. (Order (Doc. #291).) The Court stated that the prior order was

clear and unambiguous, dealing solely with the matter then before the Court as to whether

to condition Flynns withdrawal as an attorney in this matter on the return of Montgomerys

client file. (Id.) The Court further noted that Montgomery has not moved in this Court

for return of his client files under Nevada or any other applicable law. The Courts denial

of Montgomerys Motion for Clarification therefore is without prejudice to file a fully

briefed motion for return of the file, including any argument that law other than Nevadas

applies to such an inquiry. (Id.)

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On October 12, the Magistrate Judge entered an order regarding Flynns motion

for attorneys fees. (Order (Doc. #296).) In that Order, the Magistrate Judge referenced the

LA Action and, in a footnote, stated that in the face of the District Courts September 4,

2007 order that Flynn and DiMare would not be compelled to surrender their files to new

counsel of record . . ., Montgomery has continued to pursue another forum to adjudicate the

fee dispute, namely California. In his California Superior Court action, Montgomery seeks

relief that is contrary to the District Courts order. (Id. at 3 n.3.) In a separate footnote,

the Magistrate Judge acknowledged that Montgomerys new counsel had indicated

Montgomery had or would file complaints with the California and/or Massachusetts State

Bars. (Id. at 5 n.5.) The Magistrate Judge stated, [t]he court takes no position on the

propriety of such potential complaints. By this order, this court only takes jurisdiction over

the attorneys fees and client file dispute. (Id.)

The Magistrate Judge granted Flynns motion for attorneys fees to the extent that

the Court would determine the amount of fees due, but the Court would not order

Montgomery to pay the fees at that juncture. (Id.) As to the retaining lien issue, the

Magistrate Judge noted that Montgomery never had filed a motion with this Court for return

of his files, and the Court therefore could not order Flynn to return the files absent a motion

by the client and presentation of adequate security or bond for the payment of the fees. (Id.)

In conclusion, the Magistrate Judge stated that she had jurisdiction to adjudicate

the amount of attorneys fees due to Flynn and set forth a procedure by which she would

make that determination. (Id.) With respect to the retaining lien, the Magistrate Judge

stated the court concludes that should Montgomery desire the client files currently in

Flynns possession, Montgomery must file a motion requesting the return of the files and

post adequate security or bond. (Id.) The Magistrate Judge further ordered that

Montgomerys counsel shall deliver, either via facsimile or hand delivery, a copy of this

order to the chambers of the presiding judge in the LA Action prior to the scheduled

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October 18 hearing in that action. (Id.)

Pham and Klar thereafter attended the October 18 hearing in the LA Action. (Tr.

(Doc. #323).) As directed by the Magistrate Judge, Pham and Klar provided the Magistrate

Judges October 12 order to the presiding judge in the LA Action. (Notice of Lodging

USDC Nevada Order of Oct. 12, 2007).) At the hearing, Pham stated the Los Angeles

Superior Court was the only court with jurisdiction to decide whether or not the files

should get turned over because the files are located here in California, and [o]nly this

court could order the files to get turned over because the files are located here in

California. (Tr. (Doc. #323) at 5-6.) Pham also stated that the only issue before the

Magistrate Judge in this action was the attorneys fee dispute, its not with respect to

possession of the files. (Id. at 9.) Later in the hearing, after DiMare referenced footnote 5

of the Magistrate Judges October 12 order, Pham stated that she was not contentesting

that [the Nevada District Court] has jurisdiction, were simply saying we believe this court

also has jurisdiction, it is concurrent jurisdiction. (Id. at 12-13.)

Klar also attended the hearing and suggested government counsels appearance at

the hearing was to get another bite at the apple and to try to circumvent [this Courts]

order. (Id. at 8.) Klar stated government counsel was at the hearing to muddy the waters

and to somewhat intimidate Your Honor to refrain in giving us the relief that we believe

Mr. Montgomery and Mrs. Montgomery and the Montgomery Trust is entitled to. (Id.)

The Los Angeles Superior Court denied Montgomerys motion for writ of possession,

finding that Montgomery had not met his burden of establishing he was entitled to

possession of the client file. (Id. at 13.)

On October 31, the Massachusetts State Bar closed Montgomerys bar complaint.

(Exs. to Flynn Decl. (Doc. #548), Ex. 5.) In its letter, the Bar stated that Montgomery did

not mention in [his] complaint that the United States District Court, District of Nevada,

entered detailed and comprehensive orders with respect to the transmission of the file.

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Attorney Flynn was admitted pro hac vice in the Nevada Court and as such, in connection

with that proceeding, is subject to the standards of professional conduct as adopted by the

Nevada Supreme Court. (Id. at 1.) The Bar also noted that the client file may contain state

secrets, and that this Court had maintained jurisdiction over such issues. (Id.)

On November 9, the Magistrate Judge held a hearing to discuss with the parties

the fact that although the Court previously had ordered the unredacted materials in the

search warrant proceedings be unsealed, Montgomerys February 2007 Declaration

inadvertently never was unsealed. (Order (Doc. #270); Mins. of Proceedings (Doc. #331).)

The Magistrate Judge ordered the declaration be unsealed. (Id.)

On November 1, the Los Angeles Superior Court dismissed the LA Action. (Exs.

to Flynn Decl. (Doc. #548), Ex. 1.) In dismissing the action, the presiding judge stated:

California is only involved in this matter due to an unsubstantiatedallegation by the plaintiff that defendant misrepresented to him thatdefendant was licensed to practice in California. This case is before aCalifornia court for the transparent purpose of having this courtcountermand the orders of the Nevada District Court. California hasno interest in doing so.

(Id. at 3.) Approximately two weeks later, the San Diego Bar Association dismissed

without prejudice the request for arbitration of the fee dispute. (Exs. to Flynn Decl. (Doc.

#548), Ex. 4.) The Bar Association stated that based on the orders of this Court and the Los

Angeles Superior Court, it is clear that the US District for Nevada has taken control of the

entire case filed by . . . Montgomery including the issue of attorney fees and costs. (Id.)

On March 24, 2008, the Magistrate Judge entered an order granting Flynns

motion for attorneys fees and costs in the amount of $557,522.18. (Order (Doc. #502).)

On April 24, Flynn moved for sanctions pursuant to 28 U.S.C. 1927 and/or the Courts

inherent power against the Montgomery parties and their counsel of record, Deborah Klar

and her firm, Liner Yankelevitz Sunshine & Regenstreif, LLP. (Mot. for Sanctions (Doc.

#545) at 1.) Among other things, Flynn argued that Montgomery and his counsel

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vexatiously multiplied the proceedings by attempting to circumvent this Courts Orders

regarding the client files by filing actions or complaints in three different forums and using

the September 2007 Declaration, which Flynn asserted was perjured. (Id. at 2.) Flynn also

contended that Montgomery and his counsel misrepresented this Courts orders at the

October 18 hearing before the Los Angeles Superior Court. (Id. at 3.) Flynn requested over

$200,000 in attorneys fees for the period of August 1, 2007 through December 5, 2007,

and he requested the revocation of Ms. Klars pro hac vice admission in these cases. (Id.

at 24.) Montgomery opposed the motion, and included declarations from Pham and Klar.

(Oppn to Mot. for Sanctions Filed by Attorney Michael J. Flynn (Doc. #601); Pham Decl.

(Doc. #599); Klar Decl. (Doc. #600).)

The Magistrate Judge set an evidentiary hearing related to the motion for

sanctions and indicated the evidentiary hearing would address only the September 2007

Declaration and the Montgomery parties litigation against Flynn in the LA Action, the San

Diego fee arbitration, and the Massachusetts Bar complaint. (Order (Doc. #770).) The

order required Montgomery to appear in person and to testify concerning these matters.

(Id.) The order also stated that Flynn, Klar, and Pham shall attend the hearing in person

and shall be prepared to address the court concerning these matters. (Id.) The Magistrate

Judge held a sealed evidentiary hearing on August 21, at which Montgomery and Pham

testified under oath. (Mins. of Proceedings (Doc. #826).) Klar was present but did not

testify. (Id.)

Montgomery and Trepp subsequently settled the underlying lawsuit. (Mins. of

Proceedings (Doc. #856).) After Montgomery defaulted on a payment required under the

settlement agreement, judgments by confession were entered against the Montgomery

parties and other parties in the litigation. (Judgment (Doc. #897, #898).) The Court also

entered judgment on the award of attorneys fees to Flynn. (Judgment (Doc. #902).)

Subsequent efforts at settling the Flynn fee dispute were unsuccessful. (Mins of

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Proceedings (Doc. #933).) On February 19, 2009, the Court entered an order dismissing all

claims and counterclaims in the underlying action. (Order (Doc. #962).) However, the

Court retained jurisdiction over, among other things, Flynns motion for sanctions. (Id.)

On March 31, 2009, the Magistrate Judge entered a 54-page order granting

Flynns motion for sanctions under 28 U.S.C. 1927 and the Courts inherent power.

(Order (Doc. #985).) The Magistrate Judge sanctioned Montgomery for perjuring himself

in the September 2007 Declaration regarding his knowledge about Flynns admission status,

and that he signed the declaration in bad faith, vexatiously, wantonly, and for oppressive

reasons. (Id. at 49.) The Magistrate Judge also sanctioned Klar and Pham, finding that

Klar and Pham acted in bad faith or conduct tantamount to bad faith with the intention to

undermine this courts orders for the improper purpose of obtaining a more favorable forum

for resolution of the fee dispute and the turnover of the client files. (Id. at 37.) The

Magistrate Judge also sanctioned the Liner Firm, concluding that it allowed Klar to operate

unchecked and unquestioned, and the Firm acquiesced to or willingly carried out Ms.

Klars litigation strategy. (Id. at 48.)

Based on her findings, the Magistrate Judge awarded Flynn and DiMare

attorneys fees in the amount of $201,990 and costs in the amount of $2,421. (Id. at 51-52.)

The Magistrate Judge apportioned the sanctions as follows: Klar 50%, Montgomery 30%,

Pham 10%, and the Liner Firm 10%, and imposed joint and several liability among the

sanctioned parties. (Id. at 52.)

The Magistrate Judge also imposed non-monetary sanctions on Klar, Pham, and

Montgomery. The Magistrate Judge ordered that the Clerk of Court send a copy of the

sanctions order to the Nevada and California State Bars; that Klar and Pham be prohibited

from applying for pro hac vice admission to this Court for five years, after which time they

may apply but must attach a copy of the sanctions order along with a declaration identifying

all the legal ethics courses they have completed in the interim; that the Court would publish

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the sanctions order as a form of public reprimand; and that Klar and Pham must perform

200 and 100 hours of pro bono legal services, respectively. (Id. at 52-53.) As to

Montgomery, the Magistrate Judge ordered that a copy of the sanctions order be sent to the

United States Attorneys Office. (Id. at 53.)

The Magistrate Judge indicated that pursuant to Local Rule IB 3-1(a), any party

could object to the sanctions order. (Id. at 54.) The Magistrate Judge therefore stayed the

sanction orders effect until after the undersigned issued a final order with respect to any

objections. (Id.) The Liner Firm, Klar, Pham, and Montgomery subsequently filed

objections to the sanctions order.

Prior to this Court resolving the objections to the sanctions order, Dennis and

Brenda Montgomery filed a Notice of Filing of Voluntary Petition Under Chapter 7 of the

Bankruptcy Code and of Automatic Stay (Doc. #1104). Flynn moved in the bankruptcy

proceedings for relief from the automatic stay for this Court to rule upon the objections to

the Magistrate Judges sanctions order. (Status Report Re: Montgomery Bankruptcy (Doc.

#1143).) On January 8, 2010, the United States Bankruptcy Court for the Central District of

California granted Flynns motion, effective as of December 31, 2009. (Id., Ex. A.) The

stay having been lifted, the Court now will address the various objections to the sanctions

order.

II. LEGAL STANDARD

Magistrate judges statutorily are authorized to resolve pretrial matter[s] subject

to review by district judges under a clearly erroneous or contrary to law standard. 28 U.S.C.

636(b)(1)(A). Excluded from this grant of authority are dispositive motions, such as

motions for injunctive relief, for judgment on the pleadings, for summary judgment, to

dismiss or quash an indictment or information . . ., to suppress evidence in a criminal case,

to dismiss or to permit maintenance of a class action, to dismiss for failure to state a claim

upon which relief can be granted, . . . to involuntarily dismiss an action, and analogous

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motions. Id.; United States v. Rivera-Guerrero, 377 F.3d 1064, 1067-68 (9th Cir. 2004).

Dispositive motions may be submitted to a magistrate judge for a report and

recommendation, which the district court then reviews de novo. 28 U.S.C. 636(b)(1)(B).

Thus, nondispositive pretrial matters are governed by 636(b)(1)(A) and are

subject to the clearly erroneous or contrary to law standard of review, while dispositive

matters are governed by 636(b)(1)(B) and are subject to de novo review. Gomez v.

United States, 490 U.S. 858, 873-74 (1989); see also Fed. R. Civ. P. 72(a). Which standard

of review applies is determined by whether the motions effect properly is characterized as

dispositive or non-dispositive of a claim or defense of a party. Rivera-Guerrero, 377 F.3d

at 1068 (quotation omitted).

The United States Court of Appeals for the Ninth Circuit has not addressed

specifically whether a magistrate judges order sanctioning a party or counsel under 28

U.S.C. 1927 or the Courts inherent power is dispositive or non-dispositive. However, the

Ninth Circuit has determined that sanctions under Federal Rules of Civil Procedure 11 and

37 are non-dispositive and thus fall under 636(b)(1)(A). See Grimes v. City & County of

San Francisco, 951 F.2d 236, 240 (9th Cir. 1991) (Rule 37); Maisonville v. F2 Am., Inc.,

902 F.2d 746, 747-48 (9th Cir. 1990) (Rule 11). The Ninth Circuit has analogized sanctions

under 1927 and its inherent power to Rule 11 or Rule 37 sanctions. See Stanley v.

Woodford, 449 F.3d 1060, 1064 (9th Cir. 2006) (stating the policies undergirding Rule

37(a) sanctions are not relevantly different from those justifying sanctions under 1927 or a

courts inherent powers); Grimes, 951 F.2d at 240 (indicating there is no material

distinctions between Rule 11 sanctions and Rule 37 [discovery] sanctions (quotation

omitted)); Adriana Intl Corp. v. Thoeren, 913 F.2d 1406, 1412 n.4 (9th Cir. 1990)

(Although this case involves only a Rule 37 default, we have held that dismissal sanctions

under Rule 37 and a courts inherent powers are similar.). Sanctions under 1927 or the

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Courts inherent power therefore are non-dispositive, and subject to the clearly erroneous4

or contrary to law standard of review. 5

A finding is clearly erroneous when although there is evidence to support it, the

reviewing body on the entire evidence is left with the definite and firm conviction that a

mistake has been committed. United States v. Ressam, 593 F.3d 1095, 1118 (9th Cir.

2010) (quotation omitted). This Court may not substitute its judgment for that of the

Magistrate Judge. Grimes, 951 F.2d at 241.

III. DISCUSSION

The Court has inherent power to sanction counsel or a party who acts in bad

faith, vexatiously, wantonly, or for oppressive reasons. Leon v. IDX Sys. Corp., 464 F.3d

951, 961 (9th Cir. 2006) (quotation omitted). A court must exercise its inherent powers

with restraint and discretion, and must make a specific finding of bad faith before

sanctioning under its inherent powers. Yagman v. Republic Ins., 987 F.2d 622, 628 (9th

Cir. 1993) (quoting Chambers v. Nasco, 501 U.S. 32, 44 (1991)); Fink v. Gomez, 239 F.3d

989, 992-93 (9th Cir. 2001). Bad faith includes a broad range of willful improper

conduct, including delaying or disrupting the litigation or . . . hampering enforcement of a

court order. Fink, 239 F.3d at 992 (quotation omitted); Leon, 464 F.3d at 961. Sanctions

are available for a variety of types of willful actions, including recklessness when combined

To the extent a sanction imposed is case dispositive, such as striking an answer or entering4a default, then the sanctions order would be dispositive, and would be subject to de novo review.

Other circuits have disagreed or are undecided as to the appropriate standard of review for5a magistrate judges award of sanctions. See Kiobel v. Millson, 592 F.3d 78, 86 (2d Cir. 2010)(declining to decide the issue, but in three separate concurring opinions expressing the view that thede novo standard applied, the clearly erroneous or contrary to law standard applied, or that Congressor the Supreme Court ought to make the standard clear); Retired Chicago Police Assn v. City ofChicago, 76 F.3d 856, 869 (7th Cir. 1996) (holding a sanctions request is a dispositive matter capableof being referred to a magistrate judge only under 636(b)(1)(B) or 636(b)(3), where the districtjudge must review the magistrate judges report and recommendations de novo); Bennett v. Gen.Caster Serv. of N. Gordon Co., Inc., 976 F.2d 995, 998 (6th Cir. 1992) (same).

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with an additional factor such as frivolousness, harassment, or an improper purpose. Fink,

239 F.3d at 994. Indeed, the Court may exercise its inherent power to sanction a party or

attorney who acts for an improper purpose even if the sanctioned act consists of making a

truthful statement or a non-frivolous argument or objection. Gomez v. Vernon, 255 F.3d

1118, 1134 (9th Cir. 2001) (quotation omitted). Whether to impose sanctions under the

Courts inherent power lies within the Courts discretion. Id.

In addition to inherent powers, the Court may sanction an attorney under 28

U.S.C. 1927 for unreasonably and vexatiously prolonging the proceedings. To impose

sanctions under 1927, the Court must make a finding that counsel acted with subjective

bad faith. B.K.B. v. Maui Police Dept, 276 F.3d 1091, 1107 (9th Cir. 2002);

Pacific Harbor Capital, Inc. v. Carnival Air Lines, Inc., 210 F.3d 1112, 1118 (9th Cir.

2000). The standard is met when an attorney knowingly or recklessly raises a frivolous

argument, or argues a meritorious claim for the purpose of harassing an opponent. B.K.B.,

276 F.3d at 1107 (quotation and emphasis omitted). Whether to impose sanctions under

1927 lies within the Courts discretion. In re Keegan Mgmt. Co., Sec. Litig., 78 F.3d 431,

435 (9th Cir. 1996).

A. Liner Firm

The Liner Firm contends the Magistrate Judge sanctioned it only under 1927,

and 1927 provides for sanctions only against an attorney, not a law firm. Flynn responds

that the Magistrate Judge intended to sanction the Liner Firm under both the Courts

inherent power and 1927, and indicated in the order that the Firm acted in bad faith.

Flynn also argues sanctions may be awarded against a law firm under 1927.

Although the sanctions order generally referenced both 1927 and the Courts

inherent powers, the sanctions order imposed sanctions against the Liner Firm only pursuant

to 1927. (Order (Doc. #982) at 48 (stating sanctions against the Liner Firm are

warranted pursuant to 28 U.S.C. 1927).) The sanctions order referenced both the Courts

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inherent power and 1927 when grouping the sanctioned parties together. For example, page one

of the order states that the court concludes that the conduct of the Liner firm and its attorneys, Ms.

Klar and Ms. Pham, was willfully reckless, intended to harass, done for an improper purpose, and

was suffused with bad faith. (Id. at 1.) On page 51, the order stated: [b]ased on the foregoing,

the court finds that pursuant to its inherent powers and 28 U.S.C. 1927, the following sanctions

shall issue. (Id. at 51.) The order then itemized the sanctions against all of the sanctioned parties,6

including the Liner Firm. (Id. at 51-53.) However, in the orders discussion specifically related to

the Liner Firm, the order cited only 1927 and did not make an explicit finding of bad faith on the

Firms part. To the extent the Magistrate Judge intended to sanction the Liner Firm under the

Courts inherent power, the sanctions order does not make that intention clear.

Section 1927 provides:

Any attorney or other person admitted to conduct cases in any court ofthe United States or any Territory thereof who so multiplies theproceedings in any case unreasonably and vexatiously may be requiredby the court to satisfy personally the excess costs, expenses, andattorneys fees reasonably incurred because of such conduct.

Some Circuit Courts of Appeal have permitted 1927 sanctions against a law firm, but

have done so without analyzing whether such sanctions are permissible under the statutory

language. See Jensen v. Phillips Screw Co., 546 F.3d 59, 61-69 (1st Cir. 2008); LaPrade v.

Kidder Peabody & Co., Inc., 146 F.3d 899, 904-07 (D.C. Cir. 1998); Avirgan v. Hull, 932

F.2d 1572, 1582 (11th Cir. 1991); Baker Indus., Inc. v. Cerberus Ltd., 764 F.2d 204, 208-09

(3d Cir. 1985). In contrast, the Sixth and Seventh Circuits have indicated that 1927

sanctions are not awardable against a law firm based on the statutes plain language. See

Rentz v. Dynasty Apparel Indus., Inc., 556 F.3d 389, 396 n.6 (6th Cir. 2009); Claiborne v.

This sentence could not mean the Magistrate Judge intended to sanction all of the parties6under both sources of authority, as Montgomery is a party and thus is not sanctionable under 1927. F.T.C. v. Alaska Land Leasing, Inc., 799 F.2d 507, 510 (9th Cir. 1986) (stating 1927 does notauthorize recovery from a party).

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Wisdom, 414 F.3d 715, 722-23 (7th Cir. 2005). The United States Court of Appeals for the

Ninth Circuit has not decided whether a law firm, as opposed to an individual attorney, may

be sanctioned under 1927, although it has indicated 1927 sanctions were not permissible

against a non-profit organization that varyingly described itself as a representative of the

plaintiffs, an employer of the plaintiffs lawyers, and as the entity directing the litigation.

Lockary v. Kayfetz, 974 F.2d 1166, 1168-70 (9th Cir. 1992) (stating the district court

recognized it did not have the power to sanction the non-profit entity under 1927).

When construing a statute, the Court begins with the statutes plain language.

Moreno-Morante v. Gonzales, 490 F.3d 1172, 1175 (9th Cir. 2007). If the language is

unambiguous, the Courts inquiry is complete. Alvarado v. Cajun Operating Co., 588 F.3d

1261, 1268 (9th Cir. 2009.)

Section 1927 by its plain terms applies only to an attorney or other person

admitted to conduct cases in any court of the United States. A law firm is not an attorney.

Nor is it a person admitted to conduct cases in federal courts. Individual lawyers, not

firms, are admitted to practice before both the state courts and the federal courts.

Claiborne, 414 F.3d at 723. Further, the statute requires the sanctioned person to satisfy

personally the costs and expenses incurred as a result of the sanctionable conduct.

The conclusion that 1927 does not apply to law firms is supported by the

United States Supreme Courts analysis of whether a prior version of Federal Rule of Civil

Procedure 11 applied to law firms. In Pavelic & LeFlore v. Marvel Entertainment Group,

the Supreme Court held that Rule 11s plain language permitted the imposition of sanctions

on the person who signed the paper at issue. 493 U.S. 120, 123 (1989). Because the Rule

required an attorney or unrepresented party to sign the paper in his or her individual

name, the Supreme Court concluded that the signature requirement, and the consequences

attached thereto, ran to the individual attorney and not to his or her law firm. Id. at 123-24.

Following this decision, Rule 11 was amended to allow sanctions against law firms. See

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Fed. R. Civ. P. 11(c)(1) (If, after notice and a reasonable opportunity to respond, the court

determines that Rule 11(b) has been violated, the court may impose an appropriate sanction

on any attorney, law firm, or party that violated the rule or is responsible for the

violation.); see also Fed. R. Bankr. P. 9011(c) (listing law firms among persons or entities

that may be sanctioned).

The Court therefore concludes 1927 sanctions may not be imposed against a

law firm. The Magistrate Judges order imposing such sanctions thus is contrary to law. In

re Keegan Mgmt. Co., Sec. Litig., 78 F.3d at 435 (For a sanction to be validly imposed, the

conduct in question must be sanctionable under the authority relied on. (quotation

omitted)). The Liner Firms objection to the sanctions order is affirmed, and the sanctions

order as to the Liner Firm is reversed without prejudice to any further proceedings

consistent with this Order with respect to Flynns motion for sanctions.7

B. Montgomery

Montgomery argues the sanctions against him are based on perceived differences

in his two declarations, but there is insufficient evidence to support a finding that the

September 2007 Declaration was made in bad faith. Montgomery argues his two

declarations do not contradict each other because the February Declaration does not

mention anything about where Flynn was licensed. Even if the declarations are

inconsistent, Montgomery contends the evidence adduced at the evidentiary hearing

demonstrated Montgomery did not understand what it meant to be licensed or admitted in a

certain jurisdiction and the significance of that in relation to practicing law in a particular

state. Montgomery further argues his September 2007 Declaration does not amount to

perjury because the record does not disclose what Montgomery meant by referring to Flynn

Because the Court affirms the Liner Firms objections on this basis, the Court need not7address the Liner Firms other objections.

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as a California lawyer and in any event, the statements were not material. Montgomery

also argues he cannot be sanctioned for conduct occurring outside the proceedings in this

Court, the Magistrate Judge failed to assess the reasonableness of Flynns fees, and she

should not have made liability joint and several. Finally, Montgomery requests that in the

event any further proceedings are necessary, the Court assign a different Magistrate Judge.

Flynn responds that there is clear and convincing evidence that the September

2007 Declaration is perjured, as evidenced by the exhibits on file which show Montgomery

knew Flynn was licensed only in Massachusetts based on various documents in the record.

Flynn further argues that because Montgomery did not raise below his inability to pay, that

argument is waived. As to joint and several liability, Flynn contends it is appropriate

because Montgomery, Klar, and Pham were jointly engaged in the misconduct at issue.

Finally, Flynn argues the request for a new judge is unsupported, as the Magistrate Judge

has been unbiased in this action, ruling against Flynn on several occasions, and Flynn

contends she could have sanctioned the objecting parties even more than she did. Flynn

requests the Court modify the sanctions award to include fees expended in having to

respond to the various objections to the Sanctions.

1. The September 2007 Declaration

Under the federal perjury statute, a person commits perjury when he willfully

subscribes as true any material matter which he does not believe to be true in a declaration

signed under penalty of perjury. 18 U.S.C.A. 1621. A declarants statement under oath or

affirmation violates this statute if he makes a false statement concerning a material matter

with the willful intent to provide false testimony, rather than as a result of confusion,

mistake, or faulty memory. United States v. Dunnigan, 507 U.S. 87, 94 (1993).

The Magistrate Judges finding that Montgomery perjured himself is not clearly

erroneous or contrary to law. Montgomery filed the September 2007 Declaration under

penalty of perjury. Montgomerys statements in the September 2007 Declaration regarding

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Flynns representations to Montgomery about Flynns status as a California attorney were

material because Montgomery was attempting to convince this Court, and other forums, that

the file and fee disputes should be heard somewhere other than in this District. The

September 2007 Declaration was filed in support of Montgomerys opposition to Flynns

motion for attorneys fees. In that motion, Montgomery argued that California, not Nevada,

was the proper forum to resolve the fee dispute and cited the September 2007 Declaration in

support. (The Montgomery Parties Oppn to Michael J. Flynns Mot. for Attorneys Fees &

Costs (Doc. #261) at 2-5.)

The Magistrate Judge held an evidentiary hearing in this matter at which

Montgomery testified. In the sanctions order, she made an adverse credibility finding

against Montgomery regarding his understanding of the words admitted or licensed.

(Order (Doc. #985).) The Magistrate Judge concluded Montgomery knew or should have

know what that meant because he attended the preliminary injunction hearing in state court

at which Flynns admission and ability to practice in front of the Nevada state court was

discussed in front of Montgomery. (Id. at 18.) Even if Montgomery was not aware then, he

certainly was by February 2007, when the United States attempted to disqualify Flynn based

on the fact that Flynn was licensed only in Massachusetts, but allegedly was practicing in

California. (Id. at 19.)

These findings are not clearly erroneous or contrary to law. The Magistrate

Judge presided over the evidentiary hearing and thus had an opportunity to observe

Montgomerys demeanor while testifying. She thus uniquely was situated to evaluate

Montgomerys credibility. Moreover, the adverse credibility finding has ample support in

the record. Montgomery attended the preliminary injunction hearing and was present while

local counsel introduced Flynn to the state court as a member of the Massachusetts Bar,

indicated that Flynn had applied for pro hac vice status, and stated that the Massachusetts

Bar had sent a certificate of good standing to the Nevada State Bar.

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Further, Montgomery was aware of and participated in opposing the

Governments efforts to disqualify Flynn on the very basis that Flynns pro hac vice

application contained misstatements because Flynn was licensed only in Massachusetts, but

was residing and practicing in California. In his February 2007 Declaration, Montgomery

averred that he had read both the motion to disqualify Flynn, and letters which Flynn had

sent to high ranking officials on Montgomerys behalf. The Governments motion stated

that Flynn was licensed only in Massachusetts. One of the referenced letters was attached

as an exhibit to Montgomerys own declaration. On the letterhead it states beneath Flynns

name only admitted in Massachusetts.

At the sealed evidentiary hearing on the motion for sanctions, Montgomery

testified that he probably read Flynns declaration in February 2008 in which Flynn stated

that he was licensed only in Massachusetts. (Sealed Tr. (Doc. #873) at 26.) Montgomery

subsequently stated that he did not know whether he read it at the time. (Id. at 26-27.)

When questioned about reading the Governments motion to disqualify in which the

Government raised the issue that Flynn had only a Massachusetts license and not a

California license, Montgomery stated Whats that mean to me? That didnt mean to me

that you couldnt practice in California. (Id. at 29.) Montgomery further testified that he

did not know what the term licensed meant, and he assumed Flynn could practice in

California, even though Flynn did not represent Montgomery in any California courts at any

time during the representation. (Id. at 40.) When questioned regarding whether, in their

first meeting, Flynn advised Montgomery that Flynn was licensed in Massachusetts,

Montgomery responded [w]hether [Flynn] said [he was] licensed in Massachusetts, didnt

mean to me that [Flynn wasnt] in California. (Id. at 42.)

When asked whether it was his position that he never saw Flynns letterhead that

stated admitted only in Massachusetts, Montgomery stated, [n]o. That is not my

testimony. (Id. at 49-50.) When asked directly whether he had ever seen any letters

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stating admitted only in Massachusetts, Montgomery answered, Yes. (Id. at 50.)

Montgomerys counsel offered to stipulate that Montgomery had received letters with the

letterhead on it. (Id. at 87, 101-02.) Montgomery also stated that he must have seen

Flynns Massachusetts bar number next to Flynns name on numerous pleadings on file in

this Court. (Id. at 129.)

The course of the proceedings, Montgomerys February 2007 Declaration, and

his testimony at the evidentiary hearing support the Magistrate Judges adverse credibility

finding against Montgomery regarding his professed lack of knowledge as to the meaning

of admitted or licensed. Montgomery is not an unsophisticated individual, and even if

he had no understanding regarding what these terms meant prior to this litigation, the

evidence shows he knew what it meant by the time he filed the February 2007 Declaration

in support of his opposition to the Governments motion to disqualify. The Magistrate

Judges conclusion that Montgomery therefore perjured himself in the September 2007

Declaration when he averred that Flynn led him to believe throughout the course of

representation that Flynn was a California attorney, that at no time did Flynn ever inform

Montgomery that Flynn was licensed to practice only in Massachusetts, and that

Montgomery learned of Flynns status only this after he retained new counsel is neither

clearly erroneous nor contrary to law. Perjury is sufficient grounds for a bad faith finding to

support a sanction under the Courts inherent power. Whitney Bros. Co. v. Sprafkin, 60

F.3d 8, 14 (1st Cir. 1995).

2. Joint and Several Liability

A court may hold sanctioned parties jointly and severally liable. Hyde & Drath v.

Baker, 24 F.3d 1162, 1172 (9th Cir. 1994). Pursuant to general tort law, joint and several

liability is appropriate when the independent tortious conduct of each of two or more

persons is a legal cause of a single and indivisible harm to the injured party. Restatement

(Third) of Torts A18 (2000). That the Court may apportion fault does not render an

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indivisible injury divisible for purposes of the joint and several liability rule. Rudelson

v. U.S., 602 F.2d 1326, 1332 n.2 (9th Cir. 1979) (quotation omitted). Joint and several

liability as between a client and his or her attorney may be appropriate where the client

willfully participates in the sanctionable conduct. See Avirgan v. Hull, 125 F.R.D. 189,

190-91 (S.D. Fla. 1989).

The Magistrate Judges decision to make the award joint and several is not

clearly erroneous or contrary to law. Although Montgomerys Declaration was not filed in

this Court until September 2007, the facts therein were the foundation for the efforts to

pursue the fee and file disputes in three other forums. The Complaint in the LA Action, the

petition for arbitration of the fee, and the Massachusetts Bar complaint all referenced

Montgomerys assertion that Flynn held himself out to Montgomery as a California lawyer

throughout Flynns representation of Montgomery. The harm to Flynn was indivisible,

even if the Magistrate Judge found the relative fault as between Montgomery and his

attorneys was capable of being apportioned.

3. Power to Sanction for Conduct Outside Court Proceedings

Contrary to Montgomerys position, the Court has inherent power to sanction a

partys misconduct occurring outside the Courts proceedings so long as the sanctionable

conduct has a nexus with the conduct of the litigation before the court. United States v.

Wunsch, 84 F.3d 1110, 1115-16 (9th Cir. 1996) (holding that court had inherent power to

sanction attorney who had appeared in case and sent sexist letter to opposing counsel

following his disqualification from the case but concluding no sanction was authorized

under cited local rules); see also Chambers v. NASCO, Inc., 501 U.S. 32, 57 (1991)

(Chambers challenges the District Courts imposition of sanctions for conduct before other

tribunals, including the FCC, the Court of Appeals, and this Court, asserting that a court

may sanction only conduct occurring in its presence. Our cases are to the contrary,

however.). For example, the Court may invoke its inherent power to sanction conduct

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occurring before a federal agency. See Gadda v. Ashcroft, 377 F.3d 934, 947 (9th Cir.

2004) (We hold that we also have inherent authority respecting the suspension and

disbarment of attorneys who perform incompetently in federal immigration proceedings.);

In re Pacific Land Sales, Inc., 187 B.R. 302, 312 (9th Cir. BAP 1995) (stating a court may

hold a party in contempt for actions performed before the FCC). The Court also may

sanction conduct in related state court proceedings. Western Sys., Inc. v. Ulloa, 958 F.2d

864, 873 (9th Cir. 1992).

Montgomerys reliance on Atchison, Topeka and Santa Fe Railway Company v.

Hercules Inc. is misplaced. In that case, the Ninth Circuit held that a district court may not

use its inherent power to dismiss a separate action not pending before it where the Federal

Rules of Civil Procedure specifically granted the litigant the right to proceed in the separate

action. 146 F.3d 1071, 1074 (9th Cir. 1998). As the Magistrate Judge did not dismiss or

attempt to dismiss any separate action as a sanction under the Courts inherent power,

Hercules Inc. is inapplicable.

4. Reasonableness of Fees

Where a sanction is appropriate, the amount of the sanction award must be

reasonable. Matter of Yagman, 796 F.2d 1165, 1184 (9th Cir. 1986). This is particularly

so where, as here, the amount of the sanction is based upon the attorneys fees claimed by

the other party. Id. The Court should avoid issuing a lump-sum sanctions award based on

different sources of authority to sanction and covering a host of misconduct over a period of

time. Id. Rather, the sanctions award must be quantifiable with some precision and

properly itemized in terms of the perceived misconduct and the sanctioning authority. Id.

When the sanctions award is based upon attorneys fees and related expenses, an

essential part of determining the reasonableness of the award is inquiring into the

reasonableness of the claimed fees. Id. at 1184-85. The Court must make some

evaluation of the fee breakdown submitted by counsel to determine not the actual fees and

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expenses incurred, but what amount of fees and expenses are reasonable. Id. at 1185.

Additionally, the Court should consider the sanctioned partys ability to pay to determine

the awards reasonableness. Id. However, the sanctioned party has the burden to produce

evidence of inability to pay. Gaskell v. Weir, 10 F.3d 626, 629 (9th Cir. 1993). Failure to

present such evidence or raise the issue below waives the argument regarding inability to

pay. Fed. Election Commn. v. Toledano, 317 F.3d 939, 949 (9th Cir. 2002).

The sanction here was measured with reference to Flynns attorneys fees and

costs. The Magistrate Judge reviewed Flynns submissions and made several adjustments

from Flynns requested amount. First, the Magistrate Judge lowered Flynns requested

hourly rates. (Order (Doc. #985) at 51.) Second, she reviewed Flynns time entries line-

by-line and declined to award fees for work on the fee application that resulted in a

separate award of attorneys fees in March 2008 or for work performed on a separate

motion Flynn filed under Rule 3.3 of the Nevada Rules of Professional Conduct. (Id.)

Third, the Magistrate Judge deducted time for entries that were vague or duplicative. (Id.)

The sanctions award is sufficiently itemized, as the Magistrate Judge limited the

sanction to the tasks reflected in Flynns time sheets related only to defense of the various

different proceedings Montgomery initiated against Flynn. She specifically deducted time

that was, or might be, related to other matters. The Magistrate Judge also reviewed the

reasonableness of the fees, reducing the rate Flynn and DiMare sought for their services,

deducting any vague or duplicative entries, and conducting a line-by-line review of

Flynns time entries. The sanctions award is not a blanket, lump-sum award and it

adequately ties the fees incurred as result of the sanctionable conduct.

As to Montgomerys ability to pay, Montgomery did not present any evidence on

his inability to pay, despite the fact that Flynn requested even more in fees than the

Magistrate Judge awarded. Montgomery therefore has waived the argument by failing to

present evidence or raise the argument before the Magistrate Judge. The Court therefore

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will affirm the sanctions award against Montgomery. The Court denies Flynns request for

fees in responding to the objections to the Magistrate Judges sanctions order.

4. Reassign

Absent personal bias, remand to a new judge is warranted only in rare

circumstances. United States v. Rapal, 146 F.3d 661, 666 (9th Cir. 1998). To determine

whether reassignment is warranted, the Court must consider:

(1) whether the original judge would reasonably be expected uponremand to have substantial difficulty in putting out of his or her mindpreviously-expressed views or findings determined to be erroneous orbased on evidence that must be rejected, (2) whether reassignment isadvisable to preserve the appearance of justice, and (3) whetherreassignment would entail waste and duplication out of proportion toany gain in preserving the appearance of fairness.

Hunt v. Pliler, 384 F.3d 1118, 1126 (9th Cir. 2004) (quotation omitted). The first two of

these factors are of equal importance, and a finding of one of them would support a remand

to a different judge. Id. (quotation omitted).

As an initial matter, Montgomerys request for reassignment is largely moot. The

underlying case has settled and the sanctions proceedings as to Montgomery are now

complete. Consequently, it is unclear whether Montgomery will be a participant in any

further proceedings before the Magistrate Judge. In any event, there is no evidence the

Magistrate Judge would have any difficulty putting out of her mind previously expressed

views on any pertinent matters. Reassignment is not necessary to preserve the appearance

of justice, and reassignment would result in waste and duplication substantially

disproportionate to any perceived gain in preserving the appearance of fairness. The

Magistrate Judge has expended considerable time and effort on these matters, presided over

the evidentiary hearing, and has intimate familiarity with the facts related to this matter.

The Court therefore denies Montgomerys request for reassignment at this time.

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C. Pham

Pham argues the sanctions order violates her due process rights because Pham

was not on notice that she personally might be subject to sanctions. Flynn responds that

Pham had adequate notice and an opportunity to be heard, as he mentioned her by name in

his motion for sanctions, requested her pro hac vice admission be revoked, and described

her conduct in the motion and supporting declaration. Flynn also argues Pham had an

opportunity to be heard because she filed a declaration in support of the Montgomery

parties opposition to Flynns motion for sanctions, she testified at the hearing, and she filed

an offer of proof in support of her objections.

Prior to imposing sanctions, a Court must provide the party or attorney facing

potential sanctions notice and an opportunity to be heard. Lasar v. Ford Motor Co., 399

F.3d 1101, 1109-10 (9th Cir. 2005); see also Roadway Exp., Inc. v. Piper, 447 U.S. 752,

767 (1980). The Court must give notice as to the potential sanctions, the particular alleged

misconduct, and the particular disciplinary authority under which the court is planning to

proceed. In re DeVille, 361 F.3d 539, 548 (9th Cir. 2004); Cole v. U.S. Dist. Ct. For Dist.

of Idaho, 366 F.3d 813, 822 (9th Cir. 2004); see also Mendez v. County of San Bernardino,

540 F.3d 1109, 1132 (9th Cir. 2008) (To the extent the district court was focused on

punishing [counsel] for his trial misbehavior, it was incumbent on the court to give him fair

notice of that personal exposure and obligation to appear in person.).

These minimal procedural requirements give an attorney an opportunity to argue

that his actions were an acceptable means of representing his client, to present mitigating

circumstances, or to apologize to the court for his conduct. Lasar, 399 F.3d at 1110.

Further, the procedural requirements ensure that the attorney has an opportunity to prepare a

defense and explain his or her questionable conduct, that the judge will consider the

propriety and severity of the sanction in light of the attorneys explanation of his or her

conduct, and that the facts supporting the sanction will appear in the record, facilitating

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appellate review. Tom Growney Equip., Inc. v. Shelley Irr. Dev., Inc., 834 F.2d 833, 836

(9th Cir. 1987). The Court need not hold an evidentiary hearing, however, as the

opportunity to brief the issue will suffice to comply with due process. Lasar, 399 F.3d at

1112; Pacific Harbor Capital, Inc. v. Carnival Air Lines, Inc., 210 F.3d 1112, 1118 (9th Cir.

2000).

The Magistrate Judges sanctions order is contrary to law because the Magistrate

Judge did not provide adequate notice to Pham prior to imposing the sanctions in this

matter. Flynns motion for sanctions did not explicitly seek sanctions against Pham.

Flynns motion sometimes referenced Montgomerys counsel in the plural, and discussed

some of the actions Pham took. However, Flynn specifically requested sanctions against

the Montgomery parties and their counsel of record, Deborah Klar and her firm. (Mot.

for Sanctions (Doc. #545) at 1.)

More importantly, the Magistrate Judges order setting the evidentiary hearing

did not advise Pham she may be subject to sanctions personally. The order setting the

evidentiary hearing stated that the hearing would address only two matters, Montgomerys

September 2007 Declaration and matters related thereto, and the Montgomery parties

litigation against Flynn in the various other forums. (Order (Doc. #770).) The order setting

the hearing thus was narrower than Flynns requested sanctions as set forth in his motion, as

he sought sanctions related to other alleged misconduct. Even if Flynns motion could be

read to seek sanctions against Pham, the Magistrate Judge narrowed the scope of Flynns

motion and was not considering the full panoply of misconduct or relief set forth in Flynns

motion. Consequently, Flynns motion alone could not have put Pham on notice that she

personally might be sanctioned.

The order setting the hearing also stated the following:

4. Dennis Montgomery shall appear in person to testify concerningthese matters. 5. Michael Flynn, Esq., Deborah Klar, Esq., and Terri Pham, Esq.

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shall attend the hearing in person and shall be prepared to address thecourt concerning these matters.

(Id.) Although Phams attendance at the hearing was required, the order does not make

clear that Pham would be required to show cause why she would not be personally

sanctioned or what sanctions she might face. By grouping Pham with Flynn, the party

seeking sanctions, the order setting the hearing did not give Pham adequate notice that she

personally was facing the possibility of sanctions.

The text of this order is in contrast to another order to show cause in this case

issued by the Magistrate Judge which made it clear the attorney, as well as her clients, was

facing sanctions. On July 24, 2008, the Magistrate Judge entered an order setting a hearing

to show cause as to why the Montgomery parties and Deborah A. Klar, counsel for the

Montgomery parties, should not be held in contempt for failure to comply with one of the

Courts discovery-related orders. (Order (Doc. #769).)

The magnitude and scope of the sanctions issued supports this conclusion. The

sanctions order makes Pham jointly and severally liable for over $200,000 in fees and costs,

and revokes her pro hac vice application, which is the relief referred to in Flynns motion

for sanctions. However, the sanctions order also bars her from seeking pro hac vice

admission in this Court for five years, publishes the order as a public reprimand, refers

Pham to the Nevada and California Bars, and orders Pham to perform 100 hours of

community service. The order setting the hearing in this matter did not adequately advise

Pham she would be subject to these considerable sanctions.

Flynn argues that Phams due process rights were not violated because she

provided an offer of proof to this Court along with her objection to the Magistrate Judges

order, and hence she has been afforded an opportunity to be heard. However, Phams offer

of proof was provided after the Magistrate Judge made her findings. Pham did not have the

opportunity to provide this material to the Magistrate Judge, who was the fact finder in this

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matter. The undersigned is reviewing the Magistrate Judges findings on a clearly

erroneous or contrary to law standard. Phams provision of materials after the fact does not

cure the pre-deprivation due process violation. The Court therefore will sustain Phams

objections to the Magistrate Judges sanctions order, without prejudice to any further

proceedings consistent with this Order with respect to Flynns motion for sanctions.8

D. Klar

Klar argues she was not afforded procedural due process protections for the

punitive sanctions set forth in the sanctions order. Flynn responds that Klar received notice

of the charges against her, including the possible revocation of her pro hac vice admission,

as set forth in Flynns motion for sanctions.

The Magistrate Judges sanctions order is contrary to law because the Magistrate

Judge did not provide adequate notice to Klar prior to imposing the sanctions in this matter.

Flynns motion for sanctions explicitly sought sanctions against Klar. However, as

discussed above, the Magistrate Judges order setting the evidentiary hearing was narrower

than Flynns requested sanctions as set forth in his motion, as he sought sanctions related to

other alleged misconduct. The Magistrate Judge narrowed the scope of Flynns motion and

was not considering the full panoply of misconduct or relief set forth in Flynns motion.

Consequently, Flynns motion alone did not suffice to put Klar on notice as to the sanctions

the Magistrate Judge was considering.

As with Pham, although Klars attendance at the hearing was required, the order

does not make clear that Klar would be required to show cause why she should not be

personally sanctioned or what sanctions she might face. By grouping Klar with Flynn, the

party seeking sanctions, the order setting the hearing did not give Klar adequate notice that

Because the Court affirms Phams objections on this basis, the Court need not address8Phams other objections.

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she personally was facing the possibility of sanctions. Unlike the Magistrate Judges July

24, 2008 order setting a hearing to show cause as to why the Montgomery parties and

Deborah A. Klar, counsel for the Montgomery parties, should not be held in contempt, the

order setting the evidentiary hearing on Flynns motion for sanctions did not adequately

place Klar on notice that she personally may be subject to sanctions.

As discussed above, the magnitude and scope of the sanctions issued supports

this conclusion. The sanctions order makes Klar jointly and severally liable for over

$200,000 in fees and costs and revokes her pro hac vice application, which is the relief

referred to in Flynns motion for sanctions. But the sanctions order also bars her from

seeking pro hac vice admission in this Court for five years, publishes the order as a public

reprimand, refers Klar to the Nevada and California Bars, and orders her to perform 200

hours of community service. The order setting the hearing in this matter did not adequately

advise Klar she would be subject to these considerable sanctions.

Moreover, the sanctions order appears to consider Klars conduct beyond the two

subjects mentioned in the order setting the hearing. The sanctions order stated that Klars

misconduct did not occur in a vacuum; instead it was part of a vexing pattern of conduct

throughout her tenure as lead counsel until she was replaced in July 2008. (Order (Doc.

#985) at 44.) The sanctions order noted that Klar continued to invite sanctions against her

clients and herself, and discussed subsequent orders of this Court regarding Klar and the

Montgomery parties failure to abide by this Courts orders, ultimately resulting in sanctions

against Montgomery in the amount of $2,500 per day. (Id. at 44-45.) The Magistrate Judge

may have recounted these events as further support for her findings as to Klars bad faith in

relation to the two areas of inquiry in the order setting the evidentiary hearing. However, it

is unclear whether the Magistrate Judge was limiting her use of Klars subsequent conduct

as evidence of her earlier bad faith or as further sanctionable conduct. The Court therefore

will sustain Klars objections to the Magistrate Judges sanctions order, without prejudice to

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any further proceedings consistent with this Order with respect to Flynns motion for

sanctions.9

IV. CONCLUSION

IT IS THEREFORE ORDERED that the Objections of Liner Grode Stein

Yankelevitz Sunshine Regenstreif & Taylor

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